The hypocrisy of it all - the double standards of trade subsidies

Friday 21 September 2012

US President Barack Obama in Ohio

It is hypocritical in the extreme. The US Trade Representative has filed a complaint with the World Trade Organisation (WTO) claiming that the Peoples’ Republic of China has given “extensive subsidies” to Chinese companies that produce automobiles and automobile parts for export.

This is the same US government that is effectively allowing rum produced in two of its Caribbean territories, Puerto Rico and the US Virgin Isalnds, to be extensively subsidized to the detriment of rum producers in non-US Caribbean countries, even though this damage has been pointed out to US President Barack Obama in a letter from the Prime Minister of St Lucia, Dr Kenny Anthony, in his capacity as Chairman of the 15-nation Caribbean Community (CARICOM).

President Obama is particularly vocal about the Chinese because he is in the midst of a Presidential election where he is campaigning for a second term, and Ohio is a swing state. If he loses Ohio, he could lose the Presidency. Ohio’s economy and a significant number of its work force are reliant directly and indirectly on automobile manufacturing. Therefore, they regard automobiles and automobile parts that are exported from China at a cheaper price as a threat to them.

President Obama’s assertion that the Chinese subsidies “directly harm working men and women on the assembly lines in Ohio and Michigan and across the Midwest” is meant to show voters in Ohio that he is standing-up for them and, also, to blunt the criticism of his rival, the Republican candidate Mitt Romney. Mr Romney has long been critical of President Obama's performance on the China trade issue, and he has pledged tougher action to enforce trade laws.

What is remarkable about the stance of both President Obama and Mr Romney is that neither of them acknowledges the unfairness of the US government position on subsidies to US producers. For instance, massive government subsidies to US farmers, totalling US$10 billion last year, have given them an excessive advantage hurting farmers who can’t compete on the world market and others who are crowded out of their own domestic market because of imports of cheaper US subsidised agricultural products.

This same observation is now true of the heavy subsidies on rum production and marketing in excess of US$500 million a year that are being given to private companies by the governments of Puerto Rico and the US Virgin Islands - for which the US Federal government is responsible – to the disadvantage of rum producers in non-US Caribbean countries such as Barbados, Guyana, and Jamaica.

And while the US government is quick to take other countries to the WTO dispute settlement body and to apply punitive remedies when it wins, it is a dark stain on the US record in the WTO that it has still not settled matters with Antigua and Barbuda after being found in violation of its commitment under the General Agreement of Trade and Services by refusing to allow internet gaming from Antigua and Barbuda in to the US. That case was won in March 2004, and subsequent appeals upheld the main findings of the original Arbitration. The US response to losing the case was to withdraw the commitment that it was judged to have violated.

The stakes are very different with China which is now the world’s second largest economy after the US and the third biggest creditor to the US government as well as its principal foreign creditor. Access to the Chinese market for US goods and services is vitally important to the US economy, and both President Obama and Mr Romney know that fact however much they may both be playing to the US electorate in the current election campaign.

The Chinese government has not taken the US government’s actions against it at the WTO lying-down. In the very week that the US government filed its second complaint at the WTO against the Chinese government, the Chinese authorities submitted a case accusing the US government of unfairly raising tariffs on thirty of China’s exports to the US market including tires and kitchen appliances. For its part, the US says that it applied the tariffs because the Chinese are “dumping” the products in the US. “Dumping” is an informal term for the practice of selling a product in a foreign country for less than either the price in the domestic country, or the cost of making the product.

So much mystery surrounds the real costs of China’s production given the huge role that the State continues to play in the economy, including in its commercial aspects, that the US government’s claim of “extensive subsidies” to the production of automobile and automobile parts and, also, of “dumping” may well be true. It will be interesting to see what a WTO Arbitration Panel concludes.

What is clear is that the rules that are being applied in these trade disputes between the US and China are ignored in relation to small countries.

In the absence of joint action by small countries for reform of the WTO and its strictures that treat each of them the same as the US, Japan or India, and a severe deficit in global democracy, hypocrisy prevails.